1) Stand Todd Inc want to manufacture a new cell phone that can be worn on the wrist. Information from dong market research shows that he can sell this phone for 25$ each.

His fixed cost would be 145, 000$ for a year and variable cost would amount 10$ per phone.

• What would the Contribution margin ratio be?

• What sales volume in units would Stand need to break even?

• What sales volume in units would Stand need to earn 200, 000$ profit?

• 4.What would be the margin of safety if he sold 25, 000$ units?

2) Spotless Inc, sells only one product. The sales price per unit is 55$, with variable cost per unit of 45$. Fixed costs are 62, 000$ per month. Maximum capacity is 36, 000 units per month.

To break even, how many units must Spotless sell per month?

If Spotless Inc, sold 27, 000 units, what would be its operating income for the month?

At present capacity, what is the maximum operating income Spotless, can expect to earn per month?

• Assuming that direct labor cost can be reduced by 2$ per unit, what would the maximum operating income be per month?

1) Stand Todd Inc want to manufacture a new cell phone that can be worn on the wrist. Information from dong market research shows that he can sell this phone for 25$ each. His fixed cost would be 145, 000$ for a year and variable cost would amount 10$ per phone. 1. What would the Contribution margin ratio be? 2. What sales volume in units would Stand need to break even? 3. What sales volume in units would Stand need to earn 200, 000$ profit? 4. 4.What would be the margin of safety if he sold 25, 000$ units? 2) Spotless Inc, sells only one product. The sales price per unit is 55$, with variable cost per unit of 45$. Fixed costs are 62, 000$ per month. Maximum capacity is 36, 000 units per month. 1. To break even, how many units must Spotless sell per month? 2. If Spotless Inc, sold 27, 000 units, what would be its operating income for the month? 3. At present capacity, what is the maximum operating income Spotless, can expect to earn per month? 4. Assuming that direct labor cost can be reduced by 2$ per unit, what would the maximum operating income be per month? Finance questions and answers Finance Name Course Date What would the Contribution margin ratio be? Contribution margin ratio = contribution margin/sales per unit Contribution = sales per unit - variable cost =15-10 =$ 5 Contribution margin ratio =5/15 = 0.3333 What sales volume in units would Stand need to break even? At break-even point (units)= fixed cost/ contribution margin = 145000/5 =29000 What sales volume in units would Stand need to earn 200, 000$ profit? Units to achieve a desired profit Profit =sp-vc-fc 200000 =15x-10x-145000 345000=5x X = no of units =69000 1 Finance questions and answers 2 Sales to meet a target of 200000 =69000*15 =$1035000 4.What would be the margin of safety if he sold 25, 000$ units? Margin of safety in sales dollars = Expected sales revenue - BE sales revenue Margin of safety in units = Expected sales in units - BE sales in units Margin of safety in units =25000-29000 MOS = (4000) Margin of safety (dollars)= 25000*15-29000*15 =$-60000 2) Spotless Inc, sells only one product. The sales price per unit is 55$, with variable cost per unit of 45$. Fixed costs are 62, 000$ per month. Maximum capacity is 36, 000 units per month Solution ($) Sales price per unit $55*36000 1980000 Less: Variable cost ($45)*36000 (162000) Contribution margin $10*36000 Less fixed cost 360000 (62000) Operating income profit The units to be sold to break even At break -even point = fixed cost / contribution margin =62000/(55-45) =62000/10 =620000 units 298000 Finance questions and answers 3 If Spotless Inc, sold 27, 000 units, what would be its operating income for the month? Solution ($) Sales price per unit $55*27000 Less: Variable cost ($45)*27000 Contribution margin $10*27000 Less fixed cost 1485000 (1215000) 270000 (62000) Operating income profit 208000 At present capacity, what is the maximum operating income Spotless, can expect to earn per month? Solution Sales price per unit $55*36000 1980000 Less: Variable cost ($45)*36000 (162000) Contribution margin $10*36000 Less fixed cost 360000 (62000) Operating income profit 298000 Assuming that direct labor cost can be reduced by 2$ per unit, what would be the maximum operating income be per month? Present capacity =36000 units Sales price per unit Less: Variable cost Contribution margin Less fixed cost $55*36000 ($45-$2)*36000 $10*36000 1980000 (1161000) 819000 (62000) Finance questions and answers Operating income profit 4 757000 Finance questions and answers Finance Name Course Date What would the Contribution margin ratio be? Contribution margin ratio = contribution margin/sales per unit Contribution = sales per unit - variable cost =15-10 =$ 5 Contribution margin ratio =5/15 = 0.3333 What sales volume in units would Stand need to break even? At break-even point (units)= fixed cost/ contribution margin = 145000/5 =29000 What sales volume in units would Stand need to earn 200, 000$ profit? Units to achieve a desired profit Profit =sp-vc-fc 200000 =15x-10x-145000 345000=5x X = no of units =69000 1 Finance questions and answers 2 Sales to meet a target of 200000 =69000*15 =$1035000 4.What would be the margin of safety if he sold 25, 000$ units? Margin of safety in sales dollars = Expected sales revenue - BE sales revenue Margin of safety in units = Expected sales in units - BE sales in units Margin of safety in units =25000-29000 MOS = (4000) Margin of safety (dollars)= 25000*15-29000*15 =$-60000 2) Spotless Inc, sells only one product. The sales price per unit is 55$, with variable cost per unit of 45$. Fixed costs are 62, 000$ per month. Maximum capacity is 36, 000 units per month Solution ($) Sales price per unit $55*36000 1980000 Less: Variable cost ($45)*36000 (162000) Contribution margin $10*36000 Less fixed cost 360000 (62000) Operating income profit The units to be sold to break even At break -even point = fixed cost / contribution margin =62000/(55-45) =62000/10 =620000 units 298000 Finance questions and answers 3 If Spotless Inc, sold 27, 000 units, what would be its operating income for the month? Solution ($) Sales price per unit $55*27000 Less: Variable cost ($45)*27000 Contribution margin $10*27000 Less fixed cost 1485000 (1215000) 270000 (62000) Operating income profit 208000 At present capacity, what is the maximum operating income Spotless, can expect to earn per month? Solution Sales price per unit $55*36000 1980000 Less: Variable cost ($45)*36000 (162000) Contribution margin $10*36000 Less fixed cost 360000 (62000) Operating income profit 298000 Assuming that direct labor cost can be reduced by 2$ per unit, what would be the maximum operating income be per month? Present capacity =36000 units Sales price per unit Less: Variable cost Contribution margin Less fixed cost $55*36000 ($45-$2)*36000 $10*36000 1980000 (1161000) 819000 (62000) Finance questions and answers Operating income profit 4 757000